Impact of interest rate increase on property

Posted On Thursday, 30 January 2014 11:36 Published by
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Property doyens comment on the impact the 50-basis repo rate increase will have on property.

John LoosJohn Loos, Household and Property Sector Strategist at FNB

John Loos, Household and Property Sector Strategist at FNB believes that the increase could negatively impact the residential property market in the short term in that it would further contain household sector's debt-to-disposable income ratio, as well as raising the level of bad debts slightly. He does however point out that one interest rate hike is unlikely to have a big impact.

Loos also points out that "All bets are off regarding any noticeable rise in house price growth compared to recent levels, and single-digit price growth is expected to remain a characteristic through 2014".


Dr Andrew Golding, CE of the Pam Golding Property Group

Andrew GoldingWhile inflationary concerns and global economic impacts remain in the spotlight, the Monetary Policy Committee’s stance to increase the repo rate stable was unexpected, particularly given the sluggish economic growth currently experienced in South Africa, says Dr Andrew Golding, chief executive of the Pam Golding Property group.

Despite this, the residential property market continues to reflect increasingly positive market sentiment and activity, fuelled by the fact that the market – including both buyers and sellers – has realigned itself in accordance with current trading conditions and the more exacting bank lending conditions required of purchasers.

“Despite the challenges facing the economy, there are a number of positive factors evident in the residential property market. From a Pam Golding Properties’ perspective we are seeing a growing readiness and appetite among buyers to commit to purchase decisions. While deposits of some 10-20 percent are generally the order of the day, as far as the mortgages are concerned, bank lending criteria in certain categories of prospective homeowners have eased to some extent. Furthermore, the natural ebb and flow of movement in the market has resumed, as people go about their lives and business and enter into property transactions as their situations or lifestyles change for a variety of reasons.”

Bruce Swain, MD of Leapfrog Property Group

Bruce Swain, MD Leapfrog Property Group"While we did not expect a change in the interest rate so soon our message to home owners remains the same", says Bruce Swain, MD of Leapfrog Property Group, "tighten your belts now as household debt-to-disposable-income is still high and the interest rate is likely to go up yet again so now is the time to save by paying into your bond".

Swain also urges home owners and buyers to remember that it's best to take a long term perspective when dealing with property; "over the long term house prices have continually increased in value and, regardless of short term hurdles, it property remains the best investment opportunity for the average South African" . 


Herschel Jawitz, CEO of Jawitz Properties

Herschel Jawitz, CE Jawitz PropertiesHerschel Jawitz CEO of Jawitz Properties says that it was inevitable that rates were going to increase at some point in 2014. Most buyers would have accounted for this in their buying decision. “The banks would certainly have factored this into their lending decisions especially in terms of the National Credit Act. From an affordability point of view, property prices are still fairly valued and interest rates, even with the increase, are at low levels so the buying proposition remains strong,” he says.

Jawitz says that the one factor that is hard to measure is the impact on consumer confidence. There is pressure on disposable income, lots of noise around tolls, the cost of electricity plus the looming elections this year, so it remains to be seen whether the increase in buyer activity, that we have seen over the previous six months, will continue or whether buyers will stop and pause to take stock of where they are.

“What is positive though, is the thought behind the decision to increase the rate which is consistent in terms of what the Reserve Bank has been saying.  What more can be said about the independence of the bank than raising rates in an election year?” he says.

Last modified on Thursday, 30 January 2014 12:43

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